Insuring the rideshare industry

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Transportation Network Companies (“TNCs”) offer prearranged transportation services for a fee, using a mobile application to connect passengers with drivers who transport them in their private vehicles. Uber and Lyft are two well-known TNCs. Widespread use of TNC services has given rise to a variety of insurance coverage issues in the first- and third-party contexts, implicating both personal automobile policies of drivers and policies maintained TNCs.

Overview of Insurance Coverage for TNCs and Drivers

When TNCs first launched (Uber in 2009 and Lyft in 2012), TNCs did not provide insurance to their drivers. TNC drivers had to rely on their personal automobile policies for coverage. However, if an accident occurred while the driver was using their vehicle for transporting a paying passenger, the driver’s personal automobile insurer would typically disclaim coverage. Such disclaimers were often based on livery exclusions, which exclude coverage when an insured vehicle is being used as a public or livery conveyance, i.e., to transport members of the public for a fee.

Over the last five years, states have passed statutes requiring that TNC and TNC drivers jointly maintain a certain minimum level of coverage. The amount of coverage varies by state, but most states have enacted statutes based upon the TNC Insurance Compromise Model Bill, which was developed by Uber and multiple insurers. Under the Model Bill, coverage requirements differ depending on the activity being performed by the driver:

• Period 1: The application is turned on and the driver is searching for a passenger.• Period 2: The driver has matched with a passenger and is on their way to pick up the passenger.• Period 3: The driver is transporting the passenger to their destination.

The Model Bill states that during Period 1, a driver operating a vehicle for a TNC must have primary liability coverage in the amount of $50,000 per person and $100,000 per accident, and $25,000 property damage liability. During Periods 2 and 3, a driver operating a vehicle for a TNC must have primary liability coverage in the amount of $1,000,000 (up to $1,500,000 in the minority of states that require such coverage for limousine operations). The coverage requirements for Periods 1, 2, and 3 can be satisfied by a policy maintained by either the TNC, the TNC driver, or a combination of both. At the same time, the Model Bill expressly authorizes personal automobile insurers to exclude coverage for TNC-related driving in all three Periods. Coverage under the TNC’s policy cannot be dependent on the driver’s personal automobile insurer first denying the claim.

It is notable that the Model Bill does not require coverage for medical payments, personal injury protection (“PIP”), collision and comprehensive, uninsured motorist (“UM”) or underinsured motorist (“UIM”). Nonetheless, the Model Bill states that the coverage provided to a TNC driver must include all state mandated coverages, which in some states includes UM/UIM and PIP. To illustrate, New Jersey’s Transportation Network Company Safety and Regulatory Act, in addition to generally following the Model Act, provides that anytime a TNC driver is logged into the application and is available to receive a ride request, but is not yet providing a prearranged ride, the driver, ridesharing company, or a combination of the two shall maintain primary PIP benefits. PIP benefits must be in the amount between $15,000 per person per accident and $250,000 per person per accident. UM/UIM coverage up to the amounts selected for primary liability insurance coverage is also required. When a TNC driver is providing a prearranged ride, the driver, ridesharing company, or combination of the two must maintain primary insurance for medical payment benefits in the amount of at least $10,000 per person per incident, which shall only apply to and provide coverage for the benefit of the TNC driver, and UM/UIM in an amount of at least $1,500,000.

While the question of minimum levels of coverage has generally been resolved on a state-by-state basis by legislature, insurance companies, TNC drivers and courts continue to encounter additional coverage issues unique to this realm. With the popularity of ridesharing remaining high, insurers are also addressing this phenomenon by issuing specific rideshare endorsements.

Endorsements to Address Rideshare Situations

Some personal automobile insurers are now writing endorsements to provide some form of rideshare coverage. Oftentimes this coverage is specifically aimed at Period 1 – where a TNC driver has the application turned on but has not yet connected with a passenger – because the amount of coverage provided by TNCs during this period can be quite limited, leaving a gap in coverage if the driver is injured. In some instances, TNC drivers can purchase an endorsement on their personal automobile policies for coverage that applies across all three Periods. The coverage varies by insurer; some are providing liability coverage, while others are providing collision and comprehensive, medical expense, and PIP. On the other hand, some insurers are making it clear that their personal automobile policies do not provide coverage in the realm of ridesharing.

Livery Exclusions

Personal automobile policies typically bar coverage when the covered auto is being used as a “public or livery conveyance” or, similarly, where an insured is carrying persons or property for a fee. Historically, these types of exclusions have been applied in cases involving the use of a vehicle as a taxicab. SeeHunt Leasing Corp. v. Univ. Underwriters Ins. Co., 123 A.D.2d 602, 506 N.Y.S.2d 886 (2d Dep’t 1986); Kurz v. Balboa Ins. Co., 1990 U.S. Dist. LEXIS 2301, 1990 WL 20219 (E.D. Pa. Mar. 1, 1990). In Kurz, the court found it to be sound policy to allow insurers to distinguish between private vehicles and commercial taxicabs, as taxicabs come with greater liability due to the frequency of their operations and variety of passengers. Id.; see alsoMarino v. Gen. Acc. Ins. Co., 416 Pa. Super. 1, 610 A.2d 477 (1992) (finding this exclusion to be valid and that the increased risk and cost created by commercial operators should be borne by those commercial operators and should not be passed on to those who use a vehicle for personal use).

Although personal automobile insurers are permitted in many jurisdictions to specifically exclude coverage for TNC-related driving, many insurers have not added a TNC-specific exclusion to their policies. Thus, the question arises whether the livery exclusions in their more traditional forms exclude coverage in connection with accidents involving TNC drivers. Courts have yet to address this question in depth.

On behalf of insurers, an argument can certainly be made that the livery exclusion is applicable at all three Periods of the TNC driver’s process because the driver is either attempting to or is actually operating the vehicle as a conveyance for hire and that is available to the public. This type of operation substantially increases risk to a level an insurer may not wish to accept without additional premiums.

On the other hand, it has been suggested within the industry that this exclusion may not be applicable because passengers can only gain access to TNCs through an online application, which takes the TNC drivers out of the realm of being available to the public at large. A recent decision by the Georgia Court of Appeals appears to support this rationale. In Haulers Ins. Co. v. Davenport, 344 Ga. App. 444, 810 S.E.2d 617 (Ga. App. 2018), the court held – though outside the rideshare context specifically – that to fall within the livery exclusion, the insured must present his services indiscriminately to the general public for hire. That said, with mobile phones capable of loading a rideshare application very widely available, there is little that prevents an individual from choosing to engage a rideshare. Arguably, this means that rideshare services are available to the public at large, much like taxicabs. Practically speaking, the public may be able to access rideshare services more easily than a taxicab in some areas.

Non-Paying Passengers

Assuming a TNC driver’s personal policy excludes coverage for rideshare services, is coverage also precluded when a TNC driver is transporting someone for free (such as a family member or friend, for example) while their rideshare app is activated and/or while a paying rideshare customer is also in the vehicle? In Trofimovich v. Progressive Direct Ins. Co., 2017 WL 3424980 (W.D. Wash. Aug. 8, 2017), for example, the court found that the insurer properly denied coverage when the insured initially reported that at the time of the accident, he was working for Lyft and was transporting a customer, but later explained that he was transporting a past customer for free. The insured did not provide proof of his ride history at and around the time of the free ride so it was not clear to the court at the time it rendered the decision whether the rideshare application was on or off.

Ultimately, the resolution of this type of coverage question will heavily depend both on the specific facts at hand and the precise exclusionary language of the policy. In some instances, a personal automobile insurer may have to provide coverage because the ride was not for a fee and the claim cannot be barred under a livery-type exclusion. Nonetheless, if the policy bars coverage for all three Periods, coverage may be excluded to the extent the application was on at the time of the free ride and the driver was available to accept a request from a paying customer.

Comment

As the TNC industry continues to evolve, so too do the insurance coverage issues related to ridesharing. Insurers desiring to provide coverage to TNC drivers (or to exclude coverage for TNC drivers), should include clearly worded endorsements and specifically identify the periods to which coverage applies and the type of coverage which is provided (or excluded). Insurers should be cognizant of the fact that there is limited case law to rely upon for guidance, and, thus, plain policy language may be tested in unique and novel scenarios.